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|Includes:DHI, PHM, Ryland Group Inc. (RYL)

By Carlos Guillen

Equity markets are on track to end this trading week in winning territory for the third consecutive week! Quite surprisingly, despite some rather sharp volatility in stock prices caused by overall worse than expected economic data this week, investors are not remaining on the sidelines, and even if the Dow Jones Industrial Average makes no gains today, it will have gained over 105 points this week.

Yesterday, investors found some encouragement in U.S. manufacturing data, which jumped to its highest level in close to four years, serving to overcome negative feelings provoked by concerning manufacturing data from China and Europe and mixed economic data from here at home. Today on the other hand, there is not much economic data to move markets, and the one bit of housing data that was released was actually disappointing, yet indices including the Dow, S&P 500, and NASDAQ are all up; slightly, but still up.

Today we got a glimpse into the housing sector, and now it is even more apparent that the all-awaited cooling is here, and the weather is not the only driver. According to the National Association of Realtors, Existing Home sales in January slipped to an annual rate of 4.62 million, declining 5.1 percent month-over-month and landing below the economists' forecast. While there certainly was a weather component to the decline, surging prices, ramping mortgage rates, and tight inventories also contributed to the decline. We should note that these contributors have been putting pressure on home sales since the summer of last year, and all regions have been on a decline; more on this below.

Perhaps it is that investors are attributing all bad economic data to the severe cold weather and are looking past the slew of disappointing numbers, and as a result stocks continue to make gains for a third straight week. Be that as it may, we are certainly not complaining.

Existing Home Sales
By David Urani

We got the NAR's existing home sales report for January this morning, and it was another disappointment on the housing front. Total sales of 4.62 million annually were down 5.1% month to month, and slightly below the 4.65 million consensus. Interestingly though, homebuilding stocks are outperforming today, with the Dow Jones US Home Construction Index up approximately 2%.

What it comes down to is that the Street was already bracing for a bad number after a recent swath of weak data, and it was probably always going to get a weather mulligan. That being said, while sales were down broadly in all regions (-3.1% in the Northeast, -3.5% in the Midwest, -7.1% in the South, and -7.3% in the West), there was a little more weakness in the South and West, where weather should have been less of a factor. Inventory did also edge higher by 2.2% to 1.9 million units, but that is still a very low level of supply and only enough to last 4.9 months at this rate of sales.

The way I see it, there's really nothing positive to be taken from today's report so I can't necessarily say the outlook for housing is encouraging. However, what I will also say is that December and January tend to be the slowest, least vital, and most susceptible months to seasonal volatility especially in this rough winter. I really want to see how things shake out in the spring as things warm up and the selling season gets into gear. And with that said, this earnings season management from a number of homebuilders including Ryland (NYSE:RYL), D.R. Horton (NYSE:DHI), Pulte (NYSE:PHM) and more have expressed quite a bit of optimism on the spring selling season noting that January traffic had been shaping up well.

Certainly the fortunes of the homebuilders in Q4 and their respective commentary have been at odds with the data of late; it will be interesting to see how the next couple of months shake out.

Stocks: RYL, DHI, PHM